Does Sinclair’s open challenge to the global microfinance industry make his claims true?

Hugh Sinclair has written a controversial book - “Confessions of A Microfinance Heretic: How Microlending Lost Its Way And Betrayed the Poor” (2012) and published by Berrett-Koehler Publishers, Inc. Recently, Hugh Sinclair, in a reply to David Roodman’s review of the book, has argued as follows:


“A hypothesis may be challenged by the accuracy of its predictions, and here lies a valid criticism of my book which none have picked up on. I anticipated vitriolic attacks from those named, as has occurred previously as I describe. In fact none have dared to comment—yet. Even the likes of Calvert Foundation, World Relief and Grameen Foundation failed to attack while I recently spoke in DC—the lion’s den. Deutsche and Citi have remained silent and we eagerly await Triple Jump’s press release. Holland’s ethical bank ASN, as well as Oxfam Novib, has remained ominously silent. Blue Orchard has kept quiet, which is surprising given their vocal (but flawed) statement in response to the NYT article on LAPO when they defended their investment. As David pointed out, I dedicate substantial space to Kiva (the main face of microfinance to the typical US lender), but not a squeak from them despite their knee-jerk reactions to previous criticisms. One almost suspects they are desperately hoping this issue will blow over. Those with nothing to hide have nothing to fear.” (


To set the record straight, I have already pointed out through two articles (Why Blame the MFIs alone?; and Should not microfinance investment vehicles be judged by the same standards set for retail MFIs?) The fact that some of Sinclair’s assertions have strong evidence in the public domain and the microfinance industry must attempt to answer the key questions raised in the articles given above. That is yet to happen in any serious manner and my mails to key stakeholders have either elicited no response or a simple reply stating that “we have not read Mr. Sinclair’s book and we will do so and get back or we will be issuing a statement shortly”. I would also like to state that I have not seen a statement from any one (barring Triple Jump—Netherlands—which sent me a statement after I asked it for clarifications regarding Sinclair’s book and I have requested their clarification on whether the statement is a public document or was sent just to me) against whom serious charges have been leveled by Sinclair.


Now, Sinclair seems to be implying that this silence of key stakeholders—against many of whom he has made very serious charges indeed—vindicates his stand and position but I am not sure of that. I guess all of us can make claims but I think we need to be accountable and fair in our writing, speech and actions just as we want the microfinance industry to be accountable globally in its value chain of delivering financial services to low income people. And unless, Sinclair offers tangible evidence that can be scrutinized publicly and evaluated independently, his claims will remain mere claims. Let us be clear about that. Merely emphasizing the silence of people (against whom claims have been put forth) does NOT in any way substantiate some of his (huge) claims. He needs to do much more and come out with verifiable evidence in support of his claims so that we all (in the public domain) can evaluate the same and come to our own conclusions independently.


That said, the silence of key stakeholders does in fact perplex me. Let me give you one example and there are many more. Please read the following paragraphs reproduced from Sinclair’s book:


“I realized the magnitude of the crisis permeating the sector in 2009 when I received a call from the managing director of Deutsche Bank ask­ing me to cease my criticisms of microfinance. I had been raising some awkward questions about a particularly questionable microfinance bank in Africa that appeared to be making incredible profits by exploiting the poor with extremely high interest rates. It had attracted some of the largest investors in the entire sector, including Deutsche Bank, many of whom claimed to be ignorant of the MFI’s underlying activities.” (Page No. 10 of the book)


“This is when I got the call from Asad Mahmood, managing director of Deutsche Bank. Asad is a solid, honest, hard-working guy and a longtime friend. But Asad had also made some mistakes. Deutsche Bank had a large microfinance fund and few staff, and sometimes it had had to make an investment with less than full information. The bank had done so with LAPO. Asad was aware of the situation at LAPO. We had discussed it many times, but the MicroRate rating withdrawal had presumably rattled him into action. He formed a so-called “creditor taskforce” of investors in LAPO, and they agreed to send a different rating agency, Planet Rating, to Nigeria, to provide an independent rating of LAPO. The investment funds themselves were unable to perform such a task, since they were neither competent enough nor independent. The new rating would hopefully put to rest once and for all the claims made about LAPO, the rating withdrawal and correct the two previous flawed ratings by MicroRate. Or so they hoped.” (Page No. 154 of the book)


“Asad also called me and asked me to back down. “Hugh, you’ve made your point. We accept this bank is doing something wrong, but it’s time to back off now.” (Page No. 154 of the book)


“If you pursue this, it’s going to cause us all some damage. We admit it was a mistake—let’s now just make sure not to repeat it. But please, will you back down, as a favor?” (Page No. 154 and 155 of the book)


“I’m asking you, as a friend, to back down. Please.” (Page No. 155 of the book)


“It was too late to back down, even though I have enormous respect for Asad. Terry and I had arranged a conference call with Calvert to discuss the mounting evidence against LAPO. We had begun initial conversations with some journalists investigating the sector, and complaints to regulators and other funds were in progress. Above all, to back down now would not be in the best interests of the poor. We had these investors on the run, finally, and still had a few cards to play. So with a heavy heart, I had to tell my friend Asad that it would not end here.(Page No. 155 of the book)


Folks, I neither know Asad Mahmood personally, nor have I met him till date. I have heard of him and see him as an important (investment) stakeholder in the global microfinance industry. Let me give all of you a brief background on Asad Mahmood…


“Mr Mahmood is responsible for an over $500 million loan and investment portfolio which seeks both financial and social return. As well as being responsible for Deutsche Bank Microfinance efforts globally, which now compromise more than 100 relationships in 41 countries, he was the central force in creating a pioneering $80 million commercial microfinance fund which has raised most of its money from 13 large institutional investors in the world.


Mr Mahmood sits on the Board of the Microfinance Information Exchange (MIX), the Editorial Board of The Microbanking Bulletin, is chairman of the ASA Foundation USA, a member of the Steering Commitee for PRI Network and sits on the Steering Committee for Private/Public Partnerships for the World Economic Forum. Mr Mahmood is also the founder of the Microfinance Club of New York, which is active in Paris, Frankfurt and London and brings microfinance leaders together to present their work and hold discussions.” (Source: Managing Risks and Rewards for Institutional Investors in Microfinance Ensuring Financial Returns while Meeting Global Social Objectives, 29 & 30 October 2008 | Millennium Knightsbridge Hotel, London, UK, Page No.2,


Mr Mahmood is someone who has always argued for transparency as evidenced by this quote


"Transparency is the root of every healthy industry. It is fundamental to good business practices." (Source: What the World is Saying About Pricing Transparency by MF Transparency, Page No.1,


And I personally have a great deal of respect for Mr Mahmood (as I have known him through his speeches, statements and writings). Therefore, it baffles me as to why (as yet) he has not responded to claims that Sinclair has made about him in the book? I have written to Mr Mahmood several times and also sent him the relevant portions from the book and there has been no reply from him for over two weeks now.


So, my first set of questions is:

  1. Why has Asad Mahmood not yet responded to such serious and devastating charges leveled by Sinclair?
  1. Did he in fact call Sinclair and ask him to back off? Did he say the things that Sinclair claims he did? (e.g., look at page 155 of Sinclair’s book - “If you pursue this, it’s going to cause us all some damage. We admit it was a mistake—let’s now just make sure not to repeat it. But please, will you back down, as a favor?”)
  1. Why, on earth, should a whistle blower do a favour to someone he is exposing? Why did Asad Mahmood expect Sinclair to do him a favour?   
  1. If indeed Mr Mahmood had requested Sinclair to back off, why did he want Sinclair to back off? And did he admit (to Sinclair) as alleged that investing in LAPO was a genuine mistake?
  1. Going by Mr Mahmood’s own statement on transparency (given above), is he being transparent and practicing what he has often preached?

I am also particularly interested in knowing more about the following:

  1. What relationship did Deutsche Bank (DB) have with LAPO in terms of various investments made as per different timelines?
  1. Was Deutsche Bank (DB) aware of the problems that LAPO had been facing when they had made their investment? If so, how did Deutsche Bank (DB) get into LAPO knowing the problems,
  1. If not, how did their due diligence miss the public domain reports (ratings) which clearly state this in 2005, 2007, 2009 and so on?  This is indeed surprising for an institution of the repute of Deutsche Bank
  1. If the due diligence had indeed missed these public domain reports, what did subsequent internal audits at Deutsche Bank have to say about all of these?

Now, investment decisions can go wrong and there is a need to reflect on that, using appropriate mechanisms and systems. But asking someone (Sinclair) to back off is very serious (if it is true). And coming from a person of the stature of Asad Mahmood—who has argued that transparency is at the core of his work in microfinance—it is indeed very shocking. I sincerely hope that Mr Mahmood comes (fully) clean with regard to what Sinclair has written in his book as the ramifications are certainly huge—both for him personally/professionally as well as for the global microfinance industry.


A final aspect that deserves strategic mention—there are similar claims made by Sinclair against some of the key personalities of global microfinance and like Mr Mahmood, they will all have to come clean and preferably soon… Otherwise, the already battered image of global microfinance will continue to take a further beating. Let us make no mistake about that! And a question that begs the answer here is whether indeed the global microfinance industry will take on the challenge thrown by Sinclair who, in my humble opinion, has dared them to comment and respond to the claims made in his book. Only time will provide the answer.


(Ramesh S Arunachalam has over two decades of strong grass-roots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural and urban development and urban poverty alleviation across Asia, Africa, North America and Europe. He has worked with national and state governments and multilateral agencies. His book—Indian Microfinance, The Way Forward—is the first authentic compendium on the history of microfinance in India and its possible future.)

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